BP and Rosneft presented their $7.8 billion stock swap as solidifying an exploration alliance in Russia’s South Kara Sea.

The Rosneft deal, however, served another purpose for BP — scaring off potential acquirers that might see the U.K. firm as vulnerable following its recent disaster in the Gulf of Mexico.

BP’s new CEO, Robert Dudley, needs time to overhaul his company’s safety program and rebuild its competitiveness in the global race for petroleum reserves. He doesn’t need the distraction of, say, Royal Dutch Shell inquiring about a merger while BP’s shares continue to trade 25% below pre-Deepwater Horizon levels.

Dudley simply wants breathing room to prove that BP is capable of recovering without help. He’s likely to get it: Any would-be buyer now has two companies to tangle with, one of them closely tied to the Russian state.

A BP spokesman denied that the swap with Rosneft was motivated by a desire to repel suitors.

What does Rosneft get in return? Funding for capital expenditures. Russian Deputy Prime Minister Igor Sechin said Russia would count on BP to provide the initial funding of $1.4 billion to $2 billion for exploring the South Kara Sea concession — despite the fact that ownership of the South Kara JV is split 33% for BP and 67% for Rosneft.

It’s no secret that Rosneft is interested in cutting a slimmer financial figure. A Rosneft representative confirmed the company reduced capital expenditures in 2009 from the previous year and has a goal of keeping net debt near 1x Ebitda.

It was also convenient that Rosneft had a billion treasury shares on hand, acquired through its absorption of Yukos Oil Company. These shares were swapped with BP as part of the deal.

This is not to say there is no strategic upside for BP. Rosneft was awarded five exploration licenses in 2010, with more expected over the next two years. This provides BP with ample opportunities to sink more money into possible future exploration efforts. But with Russian oil export taxes at roughly 50%, on top of an 18% mineral extraction tax and 20% corporate income tax, the returns from any Russian investment are well into the future. Furthermore, the joint venture does not expect to be drilling its first exploratory well until 2015 or 2016.

Fortunately, the stock swap with Rosneft has one clear-cut benefit in the short term. It provides protection from unwanted suitors as BP recovers its footing, for at least the two years that Rosneft has agreed to hold the stock.

This article originally appeared on Dow Jones Investment Banker. To find out more about the service please visit: www.dowjones.com/ib/

Comments (5 of 5)

Avalanches killed at the very least 37 men and women Tuesday within a remote northeastern province of Afghanistan and officials feared the death toll would rise.
About 20 houses had been smothered with snow inside the village of Shirinazen in Badakshan province, said Abdul Maroof Raseq, spokesman for the governor.
He mentioned girls and children were amongst the dead and at least six other people were injured.
The Badakshan governor, who was stranded by the avalanches, was taken by helicopter to neighboring Tajikistan, which was less difficult to reach than nearby locations of Afghanistan.Afghans have already been suffering via a brutal winter with bitterly cold temperatures and heavy snowfall.

8:08 pm March 9, 2012

asaukejl wrote:

Avalanches killed no less than 37 individuals Tuesday in a remote northeastern province of Afghanistan and officials feared the death toll would rise.
About 20 houses were smothered with snow within the village of Shirinazen in Badakshan province, mentioned Abdul Maroof Raseq, spokesman for the governor.
He mentioned ladies and young children had been amongst the dead and a minimum of six others were injured.
The Badakshan governor, who was stranded by the avalanches, was taken by helicopter to neighboring Tajikistan, which was easier to reach than nearby regions of Afghanistan.Afghans have already been suffering via a brutal winter with bitterly cold temperatures and heavy snowfall.

2:42 pm January 20, 2011

Anonymous wrote:

Wow, good move for BP, bad for Alaska!! Now BP is moving into less scrutiny from the EPA as was in the US, just wonder where the oil will go from the Kara Sea? They got a facility on shore, or do they have to build one?

2:11 pm January 20, 2011

Anonymous wrote:

This is a stupid article. Somebody is being paid to fill space.

11:06 am January 20, 2011

Marlo Thomas wrote:

A group of African Business and Enviromental leaders has agreed to use the BPCares domains. The leaders will use the BPCares websites to highlight the poor and unfair working conditions by the Oil Giant in Africa and Trinidad.
The domains that will be used to document their concerns will be BPCares.com, BPCares.org and BPCares.info.

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